Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-204908
The
information in this preliminary pricing supplement is not complete and may be changed. This preliminary pricing supplement is not an
offer to sell nor does it seek an offer to buy these notes in any jurisdiction where the offer or sale is not
permitted.
Subject
to Completion. Dated July 18, 2018.
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UBS AG
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$
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Capped
Leveraged Buffered MSCI EAFE
®
Index-Linked Medium-Term Notes due
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The notes will not bear interest.
The amount that you will be paid on your
notes on the stated maturity date (expected to be the second business day after the determination date) is based on the performance
of the MSCI EAFE
®
Index as measured from the trade date to and including the determination date (expected to be
between 24 and 27 months after the trade date). If the final underlier level on the determination date is greater than the initial
underlier level (set on the trade date and will be a level equal to the closing level of the underlier on the trade date), the
return on your notes will be positive, subject to the maximum settlement amount (expected to be between $1,219.40 and $1,258.00 for
each $1,000 face amount of your notes). If the final underlier level declines by up to 10.00% from the initial underlier level, you
will receive the face amount of your notes.
If the final underlier level declines by more than 10.00% from the initial underlier
level, the return on your notes will be negative. Specifically, you will lose approximately 1.1111% for every 1% negative underlier
return below the buffer level of 90.00% of the initial underlier level. You could lose your entire investment in the notes.
To determine your cash settlement amount, we will calculate
the underlier return, which is the percentage increase or decrease in the final underlier level from the initial underlier level.
On the stated maturity date, for each $1,000 face amount of your notes, you will receive an amount in cash equal to:
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if the underlier return is
positive
(the final underlier level is
greater than
the initial
underlier level), the
sum
of (i) $1,000
plus
(ii) the
product
of (a) $1,000
times
(b) the upside participation rate of 200%
times
(c) the underlier return, subject to the maximum settlement
amount;
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if the underlier return is
zero
or
negative
but
not
below
-10.00% (the final underlier level is
equal
to or
less than
the initial underlier level but not by more
than 10.00%), $1,000; or
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if the underlier return is
negative
and is
below
-10.00%
(the final underlier level is
less than
the initial underlier level by more than 10.00%), the
sum
of (i) $1,000
plus
(ii) the
product
of (a) approximately 111.11%
times
(b) the
sum of
the underlier return plus
10.00%
times
(c) $1,000.
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Your investment in the notes involves certain risks,
including, among other things, our credit risk. See “Additional Risk Factors Specific To Your Notes” beginning on page 9
of this preliminary pricing supplement.
You should read the additional disclosure herein so that you may better understand the
terms and risks of your investment.
The estimated initial value of the notes as of the trade
date is expected to be between $955.00 and $975.00 per $1,000 face amount. The range of the estimated initial value of the notes was
determined on the date hereof by reference to UBS’ internal pricing models, inclusive of the internal funding rate. For more
information about secondary market offers and the estimated initial value of the notes, see “Additional Risk Factors Specific
To Your Notes - Fair Value Considerations” and “Additional Risk Factors Specific To Your Notes - Limited or No Secondary
Market and Secondary Market Price Considerations” beginning on page 10 of this preliminary pricing supplement.
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Original issue date:
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, 2018
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Original issue price*:
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100.00% of the face amount
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Underwriting discount*:
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2.00% of the face amount
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Net proceeds to the issuer:
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98.00% of the face amount
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* The original issue price for certain investors will be
between 98.00% and 100.00% of the face amount, reflecting a foregone underwriting discount with respect to such notes; see
“Supplemental plan of distribution (conflicts of interest); secondary markets (if any)” on page 4.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these notes or passed upon the accuracy or adequacy of this preliminary pricing
supplement, the accompanying product supplement, the accompanying index supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense. The notes are not bank deposits and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
UBS Securities LLC
Pricing Supplement dated , 2018.
The issue price, underwriting discount and net proceeds
listed above relate to the notes we sell initially. We may decide to sell additional notes after the date of the final pricing
supplement, at issue prices and with underwriting discounts and net proceeds that differ from the amounts set forth above. The
return (whether positive or negative) on your investment in the notes will depend in part on the issue price you pay for such
notes.
UBS Securities LLC, our affiliate, will purchase the
notes from UBS for distribution to one or more registered broker dealers (“dealers”). UBS Securities LLC, the dealers or
any of their respective affiliates may use this preliminary pricing supplement in market-making transactions in notes after their
initial sale.
Unless UBS, UBS Securities LLC, the dealers or any of their respective affiliates selling such notes to you informs
you otherwise in the confirmation of sale, the pricing supplement to which this preliminary pricing supplement relates is being used
in a market-making transaction
. See “Supplemental plan of distribution (conflicts of interest); secondary markets (if
any)” in this preliminary pricing supplement and “Supplemental Plan of Distribution (Conflicts of Interest)” in
the accompanying product supplement.
SUMMARY INFORMATION
UBS has filed a registration statement (including a prospectus,
as supplemented by a product supplement for the notes and an index supplement for various securities we may offer, including the
notes), with the Securities and Exchange Commission, or SEC, for the offering to which this preliminary pricing supplement relates.
Before you invest, you should read these documents and any other documents relating to this offering that UBS has filed with the SEC
for more complete information about UBS and this offering. You may obtain these documents without cost by visiting EDGAR on the SEC
website at www.sec.gov. Our Central Index Key, or CIK, on the SEC website is 0001114446.
You may access these documents on the SEC website at www.sec.gov
as follows:
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Index Supplement dated April 29, 2016:
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http://www.sec.gov/Archives/edgar/data/1114446/000119312516569883/d163530d424b2.htm
References to “UBS,” “we,”
“our” and “us” refer only to UBS AG and not to its consolidated subsidiaries. In this preliminary pricing
supplement, “notes” refer to the Capped Leveraged Buffered MSCI EAFE
®
Index -Linked Medium-Term Notes
that are offered hereby, unless the context otherwise requires. Also, references to the “accompanying product
supplement” mean the UBS Underlier-Linked Notes product supplement, dated May 2, 2016, references to the “accompanying
index supplement” mean the UBS index supplement dated April 29, 2016 and references to the “accompanying
prospectus” mean the UBS prospectus titled “Debt Securities and Warrants,” dated April 29, 2016.
This preliminary pricing supplement, together with the
documents listed above, contains the terms of the notes and supersedes all other prior or contemporaneous oral statements as well as
any other written materials including preliminary or indicative pricing terms, correspondence, trade ideas, structures for
implementation, sample structures, brochures or other educational materials of ours. You should carefully consider, among other
things, the matters set forth in “Additional Risk Factors Specific To Your Notes” beginning on page 9 and in “Risk
Factors” on page PS-35 in the accompanying product supplement, as the notes involve risks not associated with conventional
debt securities. We urge you to consult your investment, legal, tax and other advisors before deciding to invest in the notes.
UBS reserves the right to change the terms of, or
reject any offer to purchase, the notes prior to their issuance. In the event of any changes to the terms of the notes, UBS
will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject
such changes in which case UBS may reject your offer to purchase.
Investor
Suitability
The notes may be suitable for you if:
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You fully understand the risks inherent in an
investment in the notes, including the risk of loss of your entire initial investment.
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You can tolerate a loss of all or a substantial portion
of your investment and are willing to make an investment that may have the full downside market risk of an investment in the stocks
comprising the underlier (the “underlier stocks”), subject to the buffer level.
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You believe the level of the underlier will appreciate
over the term of the notes and the final underlier level is unlikely to exceed the cap level (to be set on the trade date and
expected to be between 110.97% and 112.90% of the initial underlier level).
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You understand and accept that your return on the notes
is limited by the maximum settlement amount and you are willing to invest in the notes based on the maximum settlement amount (to
be set on the trade date and expected to be between $1,219.40 and $1,258.00 for each $1,000.00 face amount of your notes).
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You can tolerate fluctuations in the price of the
notes throughout their term that may be similar to or exceed the downside fluctuations in the level of the underlier or the price
of the underlier stocks.
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You do not seek guaranteed current income from your
investment and are willing to forego any dividends paid on the stocks included in the underlier.
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You are willing to hold the notes to maturity, a
term expected to be between 24 and 27 months, and accept that there may be little or no secondary market for the
notes.
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You seek an investment with exposure to companies
in the developed markets of Europe, Asia, Australia and the Far East.
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You are willing to assume the credit risk of UBS for
all payments under the notes, and understand that if UBS defaults on its obligations you may not receive any amounts due to you
including any repayment of principal.
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You understand that the estimated initial value of
the notes determined by our internal pricing models is lower than the issue price and that should UBS Securities LLC or any affiliate
make secondary markets for the notes, the price (not including their customary bid-ask spreads) will temporarily exceed the internal
pricing model price.
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The notes may not be suitable for you if:
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You do not fully understand the risks inherent in
an investment in the notes, including the risk of loss of your entire initial investment.
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You require an investment designed to guarantee a
full return of principal at maturity.
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You cannot tolerate a loss of all or a substantial
portion of your investment or are not willing to make an investment that may have the full downside market risk of an investment
in the underlier or the underlier stocks, subject to the buffer level.
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You believe that the level of the underlier will
decline during the term of the notes and the final underlier level will likely be less than the initial underlier level by more than
10.00%, or you believe the level of the underlier will appreciate over the term of the notes and that the final underlier level is
likely to exceed the cap level (to be set on the trade date and expected to be between 110.97% and 112.90% of the initial underlier
level).
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You seek an investment that has unlimited return potential without a cap on appreciation or you are unwilling
to invest in the notes based on the maximum settlement amount (to be set on the trade date and expected to be between $1,219.40
and $1,258.00 for each $1,000.00 face amount of your notes).
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You cannot tolerate fluctuations in the price of the
notes throughout their term that may be similar to or exceed the downside fluctuations in the level of the underlier or the price
of the underlier stocks.
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You seek guaranteed current income from this investment
or prefer to receive the dividends paid on the underlier stocks.
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You are unable or unwilling to hold the notes to
maturity, a term expected to be between 24 and 27 months, or you seek an investment for which there will be an active
secondary market.
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You do not seek an investment with exposure to
companies in the developed markets of Europe, Asia, Australia and the Far East.
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You are not willing to assume the credit risk of UBS
for all payments under the notes.
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The investor suitability considerations
identified above are not exhaustive. Whether or not the notes are a suitable investment for you will depend on your individual
circumstances and you should reach an investment decision only after you and your investment, legal, tax, accounting and other
advisors have carefully considered the suitability of an investment in the notes in light of your particular circumstances. You
should also review “Additional Risk Factors Specific To Your Notes” in this preliminary pricing supplement and the more
detailed “Risk Factors” in the accompanying product supplement for risks related to an investment in the notes.
Key Terms
Issuer:
UBS AG, London Branch
Underlier:
MSCI EAFE
®
Index (Bloomberg
symbol, “MXEA Index”), as maintained by MSCI Inc. (“MSCI” or the “underlier sponsor”)
Specified currency:
U.S. dollars (“$”)
Terms to be specified in accordance with the accompanying
product supplement:
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type of notes: notes linked to a single underlier
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averaging dates: not applicable
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cap level: yes, as described below
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buffer level: yes, as described below
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interest: not applicable
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Face amount:
Each note will have a face amount of
$1,000; $ in the aggregate for all the offered notes; the aggregate face amount
of the offered notes may be increased if the issuer, at its sole option, decides to sell an additional aggregate face amount of the
notes subsequent to the date of the final pricing supplement. The issue price, underwriting discount, and net proceeds of the notes
in the subsequent sale may differ substantially (higher or lower) from the original issue price you paid as provided on the cover of
the final pricing supplement. The return (whether positive or negative) on your investment in the notes will depend in part on the
issue price you pay for such notes.
Purchase at amount other than face amount:
The amount
we will pay you at the stated maturity date for your notes will not be adjusted based on the issue price you pay for your notes,
so if you acquire notes at a premium (or discount) to face amount and hold them to the stated maturity date, it could affect your
investment in a number of ways. The return on your investment in such notes will be lower (or higher) than it would have been had
you purchased the notes at face amount. Also, the stated buffer level would not offer the same measure of protection to your investment
as would be the case if you had purchased the notes at face amount. Additionally, the cap level would be triggered at a lower (or
higher) percentage return than indicated below, relative to your initial investment. See “Additional Risk Factors Specific
To Your Notes — If You Purchase Your Notes at a Premium to Face Amount, the Return on Your Investment Will Be Lower Than
the Return on Notes Purchased at Face Amount and the Impact of Certain Key Terms of the Notes Will be Negatively Affected”
in this preliminary pricing supplement.
Supplemental discussion of U.S. federal income tax
consequences:
You will be obligated pursuant to the terms of the notes — in the absence of a change in law, an
administrative determination or a judicial ruling to the contrary — to characterize each note for all tax purposes as a
pre-paid derivative contract in respect of the underlier, as described under “Supplemental U.S. Tax Considerations” in
the accompanying product supplement. Pursuant to this approach, it is the opinion of Cadwalader, Wickersham & Taft LLP that upon
the taxable disposition of your notes, it would be reasonable for you to recognize capital gain or loss equal to the difference, if
any, between the amount of cash you receive at such time and your tax basis in your notes. The Internal Revenue Service (the
“IRS”) might not agree with this treatment, however, in which case, the timing and character of income or loss on your
note could be materially and adversely affected.
Additionally, we will not attempt to ascertain
whether any issuers of the underlier stocks would be treated as a “passive foreign investment company” (a “PFIC”)
within the meaning of Section 1297 of the Internal Revenue Code of 1986, as amended (the “Code”). If any such entity
were so treated, certain adverse U.S. federal income tax consequences might apply to U.S. holders upon the taxable disposition
(including cash settlement) of the notes. You should refer to information filed with the SEC or
an equivalent governmental authority by such entities and consult your tax advisor regarding the possible consequences to you if
any such entity is or becomes a PFIC.
A 30% withholding tax (which may be reduced by
an applicable income tax treaty) is imposed under Section 871(m) of the Code on certain “dividend equivalents” paid or
deemed paid to a non-U.S. holder with respect to a “specified equity-linked instrument” that references one or more
dividend-paying U.S. equity securities or indices containing U.S. equity securities. The withholding tax can apply even if the
instrument does not provide for payments that reference dividends. U.S. Treasury Department (the “Treasury”) regulations
provide that the withholding tax applies to all dividend equivalents paid or deemed paid on specified equity-linked instruments that
have a delta of one (“delta one specified equity-linked instruments”) issued after 2016 and to all dividend equivalents
paid or deemed paid on all other specified equity-linked instruments issued after 2018.
Based on our determination that the notes are
not “delta-one” with respect to the underlier or any U.S. underlier stocks, our counsel is of the opinion that the notes
should not be delta one specified equity-linked instruments and thus should not be subject to withholding on dividend equivalents.
Our determination is not binding on the IRS, and the IRS may disagree with this determination. Furthermore, the application of
Section 871(m) of the Code will depend on our determinations made upon issuance of the notes. If withholding is required, we will
not make payments of any additional amounts.
Nevertheless, after issuance, it is possible
that your notes could be deemed to be reissued for tax purposes upon the occurrence of certain events affecting the underlier,
underlier stocks or your notes, and following such occurrence your notes could be treated as delta one specified equity-linked
instruments that are subject to withholding on dividend equivalents. It is also possible that withholding tax or other tax under
Section 871(m) of the Code could apply to the notes under these rules if you enter, or have entered, into certain other transactions
in respect of the underlier, underlier stocks or the notes. If you enter, or have entered, into other transactions in respect of the
underlier, underlier stocks or the notes, you should consult your tax advisor regarding the application of Section 871(m) of the
Code to your notes in the context of your other transactions.
Because of the uncertainty regarding the
application of the 30% withholding tax on dividend equivalents to the notes, you are urged to consult your tax advisor regarding the
potential application of Section 871(m) of the Code and the 30% withholding tax to an investment in the notes.
Pursuant to final and temporary Treasury regulations and
Notice 2015-66, the withholding and reporting requirements under FATCA generally apply to certain “withholdable
payments” and, if made after December 31, 2018, payments of certain gross proceeds on a sale or disposition and certain
foreign passthru payments made after December 31, 2018 (or, if later, the date that final regulations defining the term
“foreign pass-thru payment” are published). We will not pay additional amounts with respect to such withholding taxes
discussed above.
Subject to the paragraph above, you should
read the discussion under “Supplemental U.S. Tax Considerations — Non-United States Holders — Foreign Account Tax
Compliance Act” beginning on page PS-77 in the accompanying product supplement and consult your tax advisor concerning the
potential application of the Foreign Account Tax Compliance Act.
For more information about the tax consequences of an
investment in the notes, you should review carefully the section of the accompanying product supplement entitled “Supplemental
U.S. Tax Considerations”.
Cash settlement amount (on the stated maturity date):
For each $1,000 face amount of your notes, we will pay you on the stated maturity date an amount in cash equal to:
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if
the final underlier level is
greater than or equal to
the cap level, the maximum settlement amount;
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if the final underlier level is
greater than
the initial underlier level but
less
than
the cap level, the
sum
of (1) $1,000
plus
(2) the
product
of (i) $1,000
times
(ii) the upside participation rate
times
(iii) the underlier return;
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if the final underlier level is
equal to
or
less than
the initial underlier level
but
greater than
or
equal to
the buffer level, $1,000; or
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if the final underlier level is
less than
the buffer level, the
sum
of
(1) $1,000
plus
(2) the
product
of (i) $1,000
times
(ii) the buffer rate
times
(iii) the
sum
of the underlier return
plus
the buffer amount.
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Initial underlier level:
the closing level of the
underlier on the trade date
Final underlier level:
the closing level of the
underlier on the determination date, except in the limited circumstances described under “General Terms of the Notes —
Market Disruption Event — Consequences of a Market Disruption Event or a Non-Trading Day” and “General Terms of
the Notes — Discontinuance of or Adjustments to the Underlier or a Basket Underlier; Alteration of Method of
Calculation” in the accompanying product supplement
Additional Market Disruption Event:
Notwithstanding any
provision to the contrary in the accompanying product supplement, if the underlier is calculated and published by the underlier
sponsor, a market disruption event may occur if underlier constituents constituting 20% or more, by weight, of the underlier or any
constituent index of the underlier, or option or futures contracts, if available, relating to the underlier or any constituent index
of the underlier, or underlier constituents constituting 20% or more, by weight, of the underlier or any constituent index of the
underlier do not trade on what were the respective primary markets for those underlier constituents or contracts, as determined by
the calculation agent, including when one or more applicable markets are closed for trading under ordinary circumstances.
Underlier return:
the
quotient
of (1) the
final underlier level
minus
the initial underlier level
divided
by (2) the initial underlier level, expressed as
a percentage
Upside participation rate: 20
0.00%
Cap level (to be set on the trade date):
a level of the
underlier expected to be between 110.97% and 112.90% of the initial underlier level
Maximum settlement amount (to be set on the trade date):
expected to be between $1,219.40 and $1,258.00.
Buffer level:
90.00% of the initial underlier level
Buffer amount:
10.00%
Buffer rate:
the quotient of the initial underlier
level divided by the buffer level, which equals approximately 111.11%
Trade date:
[ ]
Original issue date (settlement date) (to be set on the
trade date):
expected to be the fifth business day following the trade date
Determination date (to be set on the trade date):
a
specified date that is expected to be between 24 and 27 months after the trade date, subject to adjustment as described under
“General Terms of the Notes — Determination Date” in the accompanying product supplement, provided, however, that
the determination date may not be postponed to a date later than the originally scheduled stated maturity date (which is two (2)
business days after the determination date) or, if the originally scheduled stated maturity date is not a business day, the first
succeeding business day.
Stated maturity date (to be set on the trade date):
a
specified date that is expected to be the second business day after the determination date, subject to adjustment as described under
“General Terms of the Notes — Stated Maturity Date” in the accompanying product supplement, provided, however,
that if the determination date is postponed as provided under “Determination date” above, the stated maturity date will
be postponed by the same number of business day(s) from but excluding the originally scheduled determination date to and including
the actual determination date.
No interest:
The offered notes will not bear
interest.
No redemption:
The offered notes will not be subject to
a redemption right or price dependent redemption right.
No listing:
The offered notes will not be listed on any
securities exchange or interdealer quotation system.
Closing level:
The closing level of the underlier as
reported on Bloomberg Professional
®
Service (“Bloomberg”). Currently, the closing level of the underlier
as reported on Bloomberg is published to fewer decimal places than the closing level published by the underlier sponsor. As a
result, the closing level of the underlier reported by Bloomberg generally may be lower or higher than the closing level published
by the underlier sponsor.
Business day:
as described under “General Terms
of the Notes — Business Day” in the accompanying product supplement
Trading day:
When we refer to a trading day with
respect to the underlier, we mean a day on which the underlier is calculated and published by the underlier sponsor, regardless of
whether one or more of the principal securities markets for the underlier stocks are closed on that day.
Use of proceeds and hedging:
as described under
“Use of Proceeds and Hedging” in the accompanying product supplement
ERISA:
as described under “ERISA
Considerations” in the accompanying product supplement
Supplemental plan of distribution (conflicts of interest);
secondary markets (if any):
UBS will agree to sell to UBS Securities LLC, and UBS Securities LLC will agree to purchase from
UBS, the aggregate face amount of the notes specified on the front cover of the final pricing supplement. UBS Securities LLC
proposes initially to offer the notes to certain unaffiliated securities dealers at an original issue price set forth on the cover
page of this preliminary pricing supplement less a concession not in excess of 2.00% of the face amount. The original issue price
for notes purchased by certain fee-based advisory accounts will be between 98.00% and 100.00% of the face amount, which reflects a
foregone underwriting discount with respect to such notes (i.e., the underwriting discount specified on the cover of this
preliminary pricing supplement with respect to such notes may be as low as 0.00%).
We expect to deliver the notes against payment therefor in New
York, New York on
, 2018,
which is expected to be the fifth business day following the date of the final pricing supplement and of the pricing of the notes.
Under Rule 15c6-1 of the Securities Exchange Act of 1934, as amended, trades in the secondary market generally are required to
settle in two business days (T + 2), unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who
wish to trade notes on any date prior to two business days before delivery will be required, by virtue of the fact that the notes
are initially expected to settle in five business days (T + 5), to specify alternative settlement arrangements to prevent a failed
settlement.
Conflicts of interest
: UBS
Securities LLC is an affiliate of UBS and, as such, has a “conflict of interest” in the offering within the meaning of
the Financial Industry Regulatory Authority, Inc. (“FINRA”) Rule 5121. In addition, UBS will receive the net proceeds
from the initial public offering of the notes, thus creating an additional conflict of interest within the meaning of FINRA Rule
5121. Consequently, the offering is being conducted in compliance with the provisions of FINRA Rule 5121.
UBS Securities LLC and its affiliates
may offer to buy or sell the notes in the secondary market (if any) at prices greater than UBS’ internal valuation
:
The value of the notes at any time will vary based on many factors that cannot be predicted. However, the price (not including UBS
Securities LLC’s or any affiliate’s customary bid-ask spreads) at which UBS Securities LLC or any affiliate would offer
to buy or sell the notes immediately after the trade date in the secondary market is expected to exceed the estimated initial value
of the notes as determined by reference to our internal pricing models. The amount of the excess will decline to zero on a straight
line basis over a period ending no later than 3 months after the trade date, provided that UBS Securities LLC may shorten the period
based on various factors, including the magnitude of purchases and other requests from and negotiated arrangements with selling
agents. Notwithstanding the foregoing, UBS Securities LLC and its affiliates are not required to make a market for the notes and may
stop making a market at any time. For more information about secondary market offers and the estimated initial value of the notes,
see “Additional Risk Factors Specific To Your Notes — Fair value considerations” and “Additional Risk
Factors Specific To Your Notes — Limited or No Secondary Market and Secondary Market Price Considerations” in this
preliminary pricing supplement.
Prohibition of Sales to EEA Retail
Investors
: The notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or
otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes, a retail
investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive
2014/65/EU, as amended (“MiFID II”); (ii) a customer within the meaning of Directive 2002/92/EC, as amended, where that
customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified
investor as defined in Directive 2003/71/EC, as amended. Consequently no key information document required by Regulation (EU) No
1286/2014, as amended (the “PRIIPs Regulation”), for offering or selling the notes or otherwise making them available to
retail investors in the EEA has been prepared and therefore offering or selling the notes or otherwise making them available to any
retail investor in the EEA may be unlawful under the PRIIPs Regulation.
Calculation agent:
UBS Securities LLC
CUSIP no.:
90270KSX8
ISIN no.:
US90270KSX80
FDIC:
The notes are not bank deposits and are not
insured by the Federal Deposit Insurance Corporation or any other governmental agency.
HYPOTHETICAL EXAMPLES
The following table and chart are provided for purposes of
illustration only. They should not be taken as an indication or prediction of future investment results and are intended merely to
illustrate the impact that the various hypothetical final underlier levels on the determination date could have on the cash
settlement amount at maturity assuming all other variables remain constant.
The examples below are based on a range of final underlier
levels that are entirely hypothetical; no one can predict what the underlier level will be on any day throughout the life of your
notes, and no one can predict what the final underlier level will be on the determination date. The underlier has been volatile in
the past — meaning that the underlier level has changed considerably in relatively short periods — and its performance
cannot be predicted for any future period.
The information in the following examples reflects hypothetical
rates of return on the offered notes assuming that they are purchased on the original issue date at the face amount and held to the
stated maturity date. If you sell your notes in a secondary market prior to the stated maturity date, your return will depend upon
the market value of your notes at the time of sale, which may be affected by a number of factors that are not reflected in the table
below such as interest rates, the volatility of the underlier and our creditworthiness. In addition, the estimated value of your
notes at the time the terms of your notes are set on the trade date (as determined by reference to our pricing models) will be less
than the original issue price of your notes. For more information on the estimated value of your notes, see “Additional Risk
Factors Specific To Your Notes — Fair Value Considerations — The Issue Price You Pay for the Notes Will Exceed Their
Estimated Initial Value” in this preliminary pricing supplement. The information in the table also reflects the key terms and
assumptions in the box below.
|
|
Key Terms and Assumptions
|
|
|
|
Face amount
|
$1,000.00
|
|
|
|
Upside participation rate
|
200.00%
|
|
|
|
Cap level
|
111.935% of the initial underlier level (the midpoint of the range set forth herein)
|
|
|
|
Maximum settlement amount
|
$1,238.70 (the midpoint of the range set forth on the cover page of this preliminary pricing supplement)
|
|
|
|
Buffer level
|
90.00% of the initial underlier level
|
|
|
|
Buffer rate
|
Approximately 111.11%
|
|
|
|
Buffer amount
|
10.00%
|
|
|
|
Neither a market disruption event nor a non-trading day occurs on the originally scheduled determination date.
|
|
|
|
No change in or affecting any of the underlier stocks or the method by which the
underlier sponsor calculates the underlier. Notes are purchased on original issue date at the face amount and held to the stated
maturity date.
|
|
Moreover, we have not yet set the initial underlier level that
will serve as the baseline for determining the underlier return or the cap level, or the maximum settlement amount, each of which
will affect the amount that we will pay on your notes, if any, at maturity. We will not do so until the trade date. As a result, the
actual initial underlier level may differ substantially from the underlier level prior to the trade date.
For these reasons, the actual performance of the underlier over
the life of your notes, as well as the amount payable at maturity, if any, may bear little relation to the hypothetical examples
shown below or to the historical underlier levels shown elsewhere in this preliminary pricing supplement. For information about the
historical levels of the underlier during recent periods, see “The Underlier — Historical High, Low and Closing Levels
of the Underlier” in this preliminary pricing supplement. Before investing in the offered notes, you should consult publicly
available information to determine the levels of the underlier between the date of this preliminary pricing supplement and the date
of your purchase of the offered notes.
Also, the hypothetical examples shown below do not take into
account the effects of applicable taxes. Because of the U.S. tax treatment applicable to your notes, tax liabilities could affect
the after-tax rate of return on your notes to a comparatively greater extent than the after-tax return on the underlier stocks.
The levels in the left column of the table below represent
hypothetical final underlier levels and are expressed as percentages of the initial underlier level. The amounts in the right column
represent the hypothetical cash settlement amounts, based on the corresponding hypothetical final underlier level (expressed as a
percentage of the initial underlier level), and are expressed as percentages of the face amount of a note (rounded to the nearest
one-thousandth of a percent). Thus, a hypothetical cash settlement amount of 100.000% means that the value of the cash payment that
we would deliver for each $1,000.00 of the outstanding face amount of the offered notes on the stated maturity date would equal
100.000% of the face amount of a note, based on the corresponding hypothetical final underlier level (expressed as a percentage of
the initial underlier level) and the assumptions noted above.
|
Hypothetical Final Underlier Level
(as Percentage of Initial Underlier Level)
|
Hypothetical Cash Settlement Amount
(as Percentage of Face Amount)
|
|
150.000%
|
123.870%
|
|
140.000%
|
123.870%
|
|
130.000%
|
123.870%
|
|
120.000%
|
123.870%
|
|
111.935%
|
123.870%
|
|
110.000%
|
120.000%
|
|
105.000%
|
110.000%
|
|
100.000%
|
100.000%
|
|
95.000%
|
100.000%
|
|
90.000%
|
100.000%
|
|
80.000%
|
88.889%
|
|
70.000%
|
77.778%
|
|
60.000%
|
66.667%
|
|
50.000%
|
55.556%
|
|
25.000%
|
27.778%
|
|
0.000%
|
0.000%
|
If, for example, the final underlier level were determined to
be 25.000% of the initial underlier level, the cash settlement amount that we would deliver on your notes at maturity would be
approximately 27.778% of the face amount of your notes, as shown in the table above. As a result, if you purchased your notes on the
original issue date at the face amount and held them to the stated maturity date, you would lose approximately 72.222% of your
investment (if you purchased your notes at a premium to face amount you would lose a correspondingly higher percentage of your
investment). In addition, if the final underlier level were determined to be 150.000% of the initial underlier level, the cash
settlement amount that we would deliver on your notes at maturity would be capped at the maximum settlement amount (expressed as a
percentage of the face amount), or 123.870% of each $1,000.00 face amount of your notes, as shown in the table above. As a result,
if you held your notes to the stated maturity date, you would not benefit from any increase in the final underlier level over
111.935% of the initial underlier level.
The following chart also shows a graphical illustration of the
hypothetical cash settlement amounts (expressed as a percentage of the face amount of your notes) that we would pay on your notes on
the stated maturity date, if the final underlier level (expressed as a percentage of the initial underlier level) were any of the
hypothetical levels shown on the horizontal axis. The chart shows that any hypothetical final underlier level (expressed as a
percentage of the initial underlier level) of less than 90.000% (the section left of the 90.000% marker on the horizontal axis)
would result in a hypothetical cash settlement amount of less than 100.000% of the face amount of your notes (the section below the
100.000% marker on the vertical axis) and, accordingly, in a loss of principal to the holder of the notes. The chart also shows that
any hypothetical final underlier level (expressed as a percentage of the initial underlier level) of greater than or equal to
111.935% (the section right of the 111.935% marker on the horizontal axis) would result in a capped return on your investment.
The cash settlement amounts shown above are entirely hypothetical;
they are based on market prices for the underlier stocks that may not be achieved on the determination date and on assumptions
that may prove to be erroneous. The actual market value of your notes on the stated maturity date or at any other time, including
any time you may wish to sell your notes, may bear little relation to the hypothetical cash settlement amounts shown above, and
these amounts should not be viewed as an indication of the financial return on an investment in the offered notes. The hypothetical
cash settlement amounts on notes held to the stated maturity date in the examples above assume you purchased your notes at their
face amount and have not been adjusted to reflect the actual issue price you pay for your notes. The return on your investment
(whether positive or negative) in your notes will be affected by the amount you pay for your notes. If you purchase your notes
for a price other than the face amount, the return on your investment will differ from, and may be significantly lower than, the
hypothetical returns suggested by the above examples. Please read “Additional Risk Factors Specific To Your Notes –
Market Risk” and “Additional Risk Factors Specific To Your Notes – If You Purchase Your Notes at a Premium to
Face Amount, the Return on Your Investment Will Be Lower Than the Return on Notes Purchased at Face Amount and the Impact of Certain
Key Terms of the Notes Will be Negatively Affected” in this preliminary pricing supplement.
|
We cannot predict the actual final underlier level or what the
market value of your notes will be on any particular trading day, nor can we predict the relationship between the underlier
level and the market value of your notes at any time prior to the stated maturity date. The actual amount that you will receive,
if any, at maturity and the rate of return on the offered notes will depend on the actual initial underlier level, the cap level
and the maximum settlement amount, which we will set on the trade date, and the actual final underlier level determined by the
calculation agent as described above. Moreover, the assumptions on which the hypothetical returns are based may turn out to be
inaccurate. Consequently, the amount of cash to be paid in respect of your notes, if any, on the stated maturity date may be
very different from the information reflected in the table and chart above.
|
ADDITIONAL RISK FACTORS SPECIFIC
TO YOUR NOTES
|
An investment in your notes is subject to the risks described
below, as well as the risks described under “Considerations Relating to Indexed Securities” in the accompanying
prospectus, dated April 29, 2016, and “Risk Factors” in the accompanying product supplement, dated May 2, 2016. You
should carefully review these risks as well as the terms of the notes described herein and in the accompanying prospectus, dated
April 29, 2016, as supplemented by the accompanying index supplement, dated April 29, 2016 and the accompanying product
supplement, dated May 2, 2016, of UBS. Your notes are a riskier investment than ordinary debt securities. Also, your notes are
not equivalent to investing directly in the underlier stocks, i.e., the stocks comprising the underlier to which your notes are
linked. You should carefully consider whether the offered notes are suited to your particular circumstances.
|
You May Lose Your Entire Investment In
The Notes
You can lose your entire investment in the notes. The cash
payment on your notes, if any, on the stated maturity date will be based on the performance of the underlier as measured from the
initial underlier level set on the trade date to the closing level on the determination date. If the final underlier level is
less than
the buffer level, you will have a loss for each $1,000 of the face amount of your notes equal to the
product
of (a) the buffer rate
times
(b) the
sum
of the underlier return
plus
the buffer amount
times
(c)
$1,000. Thus, you may lose your entire investment in the notes, which would include any premium to face amount you paid when you
purchased the notes. Specifically, you will lose approximately 1.1111% for every 1% negative underlier return below the buffer
level.
Also, the market price of your notes prior to the stated
maturity date may be significantly lower than the purchase price you pay for your notes. Consequently, if you sell your notes before
the stated maturity date, you may receive far less than the amount of your investment in the notes.
The Upside Participation Rate Applies
Only At Maturity
You should be willing to hold your notes to maturity. If you
are able to sell your notes prior to maturity in the secondary market, the price you receive will likely not reflect the full
economic value of the upside participation rate of the notes and the return you realize may be less than the underlier return
multiplied by the upside participation rate, even if such return is positive. You can receive the full benefit of any positive
underlier return multiplied by the upside participation rate subject to the maximum settlement amount, only if you hold your notes
to maturity.
The Potential for the Value of Your
Notes to Increase Will Be Limited
Your ability to participate in any change in the value of the
underlier over the life of your notes and the positive effects of the upside participation rate on any positive underlier return
will be limited because of the cap level, which will be set on the trade date. The maximum settlement amount will limit the cash
settlement amount you may receive for each of your notes at maturity, no matter how much the level of the underlier may rise beyond
the cap level over the life of your notes. Accordingly, the amount payable for each of your notes may be significantly less than it
would have been had you invested directly in the underlier.
Your Notes Will Not Bear Interest
You will not receive any interest payments on your notes. As a
result, even if the cash settlement amount payable for your notes on the stated maturity date exceeds the face amount of your notes,
the overall return you earn on your notes may be less than you would have earned by investing in a conventional debt security of
comparable maturity that bears interest at a prevailing market rate.
The Notes Are Subject to the Credit
Risk of the Issuer
The notes are unsubordinated, unsecured debt obligations of
the issuer, UBS, and are not, either directly or indirectly, an obligation of any third party. Any payment to be made on the notes,
including any repayment of principal, depends on the ability of UBS to satisfy its obligations as they come due. As a result, the
actual and perceived creditworthiness of UBS may affect the market value of the notes and, in the event UBS were to default on its
obligations, you may not receive any amounts owed to you under the terms of the notes and you could lose your entire initial
investment.
Market Risk
The return on the notes is directly linked to the performance
of the underlier and indirectly linked to the value of the underlier stocks, and the extent to which the underlier return is
positive or negative. The level of the underlier can rise or fall sharply due to factors specific to the underlier stocks, as well
as general market factors, such as general market volatility and levels, interest rates and economic and political conditions. You
may lose some or all of your initial investment.
Fair Value Considerations
The Issue Price You Pay for the Notes
Will Exceed Their Estimated Initial Value
The issue price you pay for the notes will exceed their
estimated initial value as of the trade date due to the inclusion in the issue price of the underwriting discount, hedging costs,
issuance costs and projected profits. As of the close of the relevant markets on the trade date, we will determine the estimated
initial value of the notes by reference to our internal pricing models and it will be set forth in the final pricing supplement. The
pricing models used to determine the estimated initial value of the notes incorporate certain variables, including the level of the
underlier, the volatility of the underlier, any expected dividends on the underlier stocks, prevailing interest rates, the term of
the notes and our internal funding rate. Our internal funding rate is typically lower than the rate we would pay to issue
conventional fixed or floating rate debt securities of a similar term. The underwriting discount, hedging costs, issuance costs,
projected profits and the difference in rates will reduce the economic value of the notes to you. Due to these factors, the
estimated initial value of the notes as of the trade date will be less than the issue price you pay for the notes.
The Estimated Initial Value Is a
Theoretical Price; the Actual Price that You May Be Able to Sell Your Notes in Any Secondary Market (if Any) at Any Time After the
Trade Date May Differ From the Estimated Initial Value
The value of your notes at any time will vary based on many
factors, including the factors described above and in “—Market Risk” above and is impossible to predict.
Furthermore, the pricing models that we use are proprietary and rely in part on certain assumptions about future events, which may
prove to be incorrect. As a result, after the trade date, if you attempt to sell the notes in the secondary market, the actual value
you would receive may differ, perhaps materially, from the estimated initial value of the notes determined by reference to our
internal pricing models. The estimated initial value of the notes does not represent a minimum or maximum price at which we or any
of our affiliates would be willing to purchase your notes in any secondary market at any time.
Our Actual Profits May Be Greater or
Less than the Differential Between the Estimated Initial Value and the Issue Price of the Notes as of the Trade Date
We may determine the economic terms of the notes, as well as
hedge our obligations, at least in part, prior to the trade date. In addition, there may be ongoing costs to us to maintain and/or
adjust any hedges and such hedges are often imperfect. Therefore, our actual profits (or potentially, losses) in issuing the notes
cannot be determined as of the trade date and any such differential between the estimated initial value and the issue price of the
notes as of the trade date does not reflect our actual profits. Ultimately, our actual profits will be known only at the maturity of
the notes.
Limited or No Secondary Market and
Secondary Market Price Considerations
There May Be Little or No Secondary
Market for the Notes
The notes will not be listed or displayed on any securities
exchange or any electronic communications network. There can be no assurance that a secondary market for the notes will develop. UBS
Securities LLC and its affiliates may make a market in the notes, although they are not required to do so and may stop making a
market at any time. If you are able to sell your notes prior to maturity, you may have to sell them at a substantial loss. The
estimated initial value of the notes does not represent a minimum or maximum price at which we or any of our affiliates would be
willing to purchase your notes in any secondary market at any time.
The Price at which UBS Securities LLC
and Its Affiliates May Offer to Buy the Notes in the Secondary Market (if Any) May Be Greater than UBS’ Valuation of the Notes
at that Time, Greater than Any Other Secondary Market Prices Provided by Unaffiliated Dealers (if Any) and, Depending on Your
Broker, Greater than the Valuation Provided on Your Customer Account Statements
For a limited period of time following the issuance of the
notes, UBS Securities LLC or its affiliates may offer to buy or sell such notes at a price that exceeds (i) our valuation of the
notes at that time based on our internal pricing models, (ii) any secondary market prices provided by unaffiliated dealers (if any)
and (iii) depending on your broker, the valuation provided on customer account statements. The price that UBS Securities LLC may
initially offer to buy such notes following issuance will exceed the valuations indicated by our internal pricing models due to the
inclusion for a limited period of time of the aggregate value of the underwriting discount, hedging costs, issuance costs and
theoretical projected trading profit. The portion of such amounts included in our price will decline to zero on a straight line
basis over a period ending no later than the date specified under “Summary Information – Key Terms –
“Supplemental plan of distribution (conflicts of interest); secondary markets (if any)” herein. Thereafter, if UBS
Securities LLC or an affiliate makes secondary markets in the notes, it will do so at prices that reflect our estimated value
determined by reference to our internal pricing models at that time. The temporary positive differential relative to our internal
pricing models arises from requests from and arrangements made by UBS Securities LLC with the selling agents of structured debt
securities such as the notes. As described above, UBS Securities LLC and its affiliates are not required to make a market for the
notes and may stop making a market at any time. The price at which UBS Securities LLC or an affiliate may make secondary markets at
any time (if at all) will also reflect its then current bid-ask spread for similar sized trades of structured debt securities. UBS
Securities LLC reflects this temporary positive differential on its customer statements. Investors should inquire as to the
valuation provided on customer account statements provided by unaffiliated dealers.
Price of Notes Prior to
Maturity
The market price of the notes will be influenced by many
unpredictable and interrelated factors, including the level of the underlier; the volatility of the underlier; the dividend rate
paid on the underlier stocks; the time remaining to the maturity of the notes; interest rates in the markets; geopolitical
conditions and economic, financial, political, force majeure and regulatory or judicial events; the creditworthiness of UBS and the
then current bid-ask spread for the notes.
Impact of Fees and the Use of Internal
Funding Rates Rather than Secondary Market Credit Spreads on Secondary Market Prices
All other things being equal, the use of the internal funding
rates described above under “—Fair Value Considerations” as well as the inclusion in the original issue price of
the underwriting discount, hedging costs, issuance costs and any projected profits are, subject to the temporary mitigating effect
of UBS Securities LLC’s and its affiliates’ market making premium, expected to reduce the price at which you may be able
to sell the notes in any secondary market.
The Amount Payable on Your Notes Is Not
Linked to the Level of the Underlier at Any Time Other than the Determination Date
The final underlier level will be based on the closing level
of the underlier on the determination date, except in the limited circumstances described under “General Terms of the Notes
– Consequences of a Market Disruption Event or a Non-Trading Day” and “General Terms of the Notes –
Discontinuance of or Adjustments to the Underlier or a Basket Underlier; Alteration of Method of Calculation” in the
accompanying product supplement. Therefore, if the closing level of the underlier dropped precipitously on the determination date,
the cash settlement amount for your notes may be significantly less than it would have been had the cash settlement amount been
linked to the closing level of the underlier prior to such drop in the level of the underlier. Although the actual level of the
underlier on the stated maturity date or at other times during the life of your notes may be higher than the final underlier level,
you will not benefit from the closing level of the underlier at any time other than on the determination date.
You Have No Shareholder Rights or
Rights to Receive Any Underlier Stock
Investing in your notes will not make you a holder of any of
the underlier stocks. Neither you nor any other holder or owner of your notes will have any voting rights, any right to receive
dividends or other distributions, any rights to make a claim against the underlier stocks or any other rights with respect to the
underlier stocks. Your notes will be paid in cash and you will have no right to receive delivery of any underlier stocks.
We May Sell an Additional Aggregate
Face Amount of the Notes at a Different Issue Price
At our sole option, we may decide to sell an additional
aggregate face amount of the notes subsequent to the date of the final pricing supplement. The issue price, underwriting discount
and net proceeds of the notes in the subsequent sale may differ substantially (higher or lower) from the original issue price you
paid as provided on the cover of the final pricing supplement. The return (whether positive or negative) on your investment in the
notes will depend in part on the issue price you pay for such notes.
If You Purchase Your Notes at a Premium
to Face Amount, the Return on Your Investment Will Be Lower Than the Return on Notes Purchased at Face Amount and the Impact of
Certain Key Terms of the Notes Will be Negatively Affected
The cash settlement amount will not be adjusted based on the
original issue price you pay for the notes. If you purchase notes at a price that differs from the face amount of the notes, then
the return on your investment in such notes held to the stated maturity date will differ from, and may be substantially less than,
the return on notes purchased at face amount. If you purchase your notes at a premium to face amount and hold them to the stated
maturity date, the return on your investment in the notes will be lower than it would have been had you purchased the notes at face
amount or a discount to face amount.
In addition, the impact of the buffer level on the return on
your investment, and the extent to which the buffer level will diminish your exposure to any negative underlier return will depend
upon the price you pay for your notes relative to face amount. For example, if you purchase your notes at a premium to face amount,
the buffer level, while still providing some protection against exposure to any negative underlier return, will allow a greater
percentage decrease in your investment in the notes than would have been the case for notes purchased at face amount or a discount
to face amount.
Lastly, the impact of the cap level on the return on your
investment, and the extent to which the cap level will diminish your exposure to any positive underlier return (as leveraged by the
upside participation rate), will also depend on the price you pay for your notes relative to face amount. For example, if you
purchase your notes at a premium to face amount, the cap level will only permit a lower percentage increase in your investment in
the notes than would have been the case for notes purchased at face amount or a discount to face amount.
If the Level of the
Underlier Changes, the Market Value of Your Notes May Not Change in the Same Manner
Your notes may trade quite differently from the performance of
the underlier. Changes in the level of the underlier may not result in a comparable change in the market value of your notes. This
is because your cash settlement amount at maturity will be based on the final underlier level and subject to the maximum settlement
amount. If the underlier return is negative and the final underlier level is less than the buffer level, you could lose all or a
substantial portion of your investment in the notes. We discuss some of the reasons for this
disparity under “Risk Factors — The Market Value of
Your Notes May Be Influenced by Many Unpredictable Factors” in the accompanying product supplement.
The Underlier Reflects Price Return,
Not Total Return
The return on your notes is based on the performance of the
underlier, which reflects the changes in the market prices of the underlier stocks. It is not, however, linked to a “total
return” index or strategy, which, in addition to reflecting those price returns, would also reflect dividends paid on the
underlier stocks. The return on your notes will not include such a total return feature or dividend component.
The Notes are Considered “Hold To
Maturity” Products
Generally, there is no liquid market for the notes.
Changes Affecting The Underlier Could
Have An Adverse Effect On The Value of The Notes and the Amount You Will Receive at Maturity of Your Notes
The policies of the underlier sponsor concerning the
underlier, additions, deletions or substitutions of the underlier stocks and the manner in which changes affecting the underlier
stocks or the issuers of any underlier stocks (such as stock dividends, reorganizations or mergers) are reflected in the underlier,
could affect the level of the underlier, and, therefore, could affect the amount payable on your notes at maturity and the market
value of your notes prior to maturity. The amount payable on the notes and their market value could also be affected if the
underlier sponsor changes these policies, for example by changing the manner in which it calculates the underlier, or if the
underlier sponsor discontinues or suspends calculation or publication of the underlier, in which case it may become difficult to
determine the market value of the notes. If events such as these occur, or if the final underlier level is not available because of
a market disruption event, non-trading day or for any other reason, and no successor underlier is selected, the calculation
agent-which initially will be UBS Securities LLC, an affiliate of UBS-may determine the final underlier level - and thus the amount
payable at maturity-in a manner it considers appropriate.
Your Notes Are Subject to Non-U.S.
Securities Market Risk
The underlier is subject to risks associated with non-U.S.
securities markets, specifically the regions of Europe, Asia, Australia and the Far East. An investment in notes linked directly or
indirectly to the value of securities issued by non-U.S. companies involves particular risks. Generally, non-U.S. securities and
futures markets may be more volatile than U.S. securities and futures markets, and market developments may affect non-U.S. markets
differently from U.S. securities and futures markets. Direct or indirect government intervention to stabilize these non-U.S.
markets, as well as cross shareholdings in non-U.S. companies, may affect trading prices and volumes in those markets. There is
generally less publicly available information about non-U.S. companies than about those U.S. companies that are subject to the
reporting requirements of the SEC, and non-U.S. companies are subject to accounting, auditing and financial reporting standards and
requirements that differ from those applicable to U.S. reporting companies. Similarly, regulations of the Commodity Futures Trading
Commission generally do not apply to trading on non-U.S. exchanges, and trading on non-U.S. exchanges may involve different and
greater risks than trading on U.S. exchanges. Securities and futures prices in non-U.S. countries are subject to political,
economic, financial and social factors that may be unique to the particular country. These factors, which could negatively affect
the non-U.S. securities and futures markets, include the possibility of recent or future changes in the non-U.S. government's
economic and fiscal policies, the possible imposition of, or changes in, currency exchange laws or other non-U.S. laws or
restrictions applicable to non-U.S. companies or investments in non-U.S. equity securities or futures contracts and the possibility
of fluctuations in the rate of exchange between currencies. The United Kingdom has voted to leave the European Union (popularly
known as “Brexit”). The effect of Brexit is uncertain, and Brexit has and may continue to contribute to volatility in
the prices of securities of companies located in Europe and currency exchange rates, including the valuation of the euro and British
pound in particular. Moreover, certain aspects of a particular non-U.S. economy may differ favorably or unfavorably from the U.S.
economy in important respects, such as growth of gross national product, rate of inflation, capital reinvestment, resources and
self-sufficiency.
The Notes Are Subject to Currency
Exchange Risk
Because the prices of the underlier stocks are converted into
U.S. dollars by the underlier sponsor for the purposes of calculating the level of the underlier, you will be exposed to currency
exchange rate risk with respect to each of the currencies in which the underlier stocks trade. Your net exposure will depend on the
extent to which those currencies strengthen or weaken against the U.S. dollar and the relative weight of the underlier stocks
denominated in each of those currencies. If, taking into account the relevant weighting, the U.S. dollar strengthens against those
currencies, the level of the underlier will be adversely affected and consequently the payment at maturity of the notes, if any, may
be reduced.
UBS Cannot Control Actions By the
Underlier Sponsor and the Underlier Sponsor Has No Obligation To Consider Your Interests
UBS and its affiliates are not affiliated with the underlier
sponsor and have no ability to control or predict its actions, including any errors in or discontinuation of public disclosure
regarding methods or policies relating to the calculation of the underlier. The underlier sponsor is not involved in the notes
offering in any way and has no obligation to consider your interest as an owner of the notes in taking any actions that might affect
the market value of your notes.
Potential Conflict of Interest
UBS and its affiliates may engage in business related to the
underlier or underlier stocks, which may present a conflict between the obligations of UBS and you, as a holder of the notes. There
are also potential conflicts of interest between you and the calculation agent, which will be an affiliate of UBS. The calculation
agent will determine the underlier return and the cash settlement amount, if any, based on the closing level of the underlier on the
determination date. The calculation agent can postpone the determination of the final underlier level if a market disruption event
occurs and is continuing on the determination date. As UBS determines the economic terms of the notes, including the upside
participation rate, the cap level and the buffer level, and such terms include the underwriting discount, hedging costs, issuance
costs and projected profits, the notes represent a package of economic terms. There are other potential conflicts of interest
insofar as an investor could potentially get better economic terms if that investor entered into exchange-traded and/or OTC
derivatives or other instruments with third parties, assuming that such instruments were available and the investor had the ability
to assemble and enter into such instruments.
Furthermore, given that UBS Securities LLC and its affiliates
temporarily maintain a market making premium, it may have the effect of discouraging UBS Securities LLC and its affiliates from
recommending the sale of your notes in the secondary market. UBS or its affiliates may earn additional profits (or potentially incur
losses) as a result of payments pursuant to such hedging activities. In performing these duties, the economic interests of UBS, UBS
Securities LLC, the dealers or their respective affiliates are potentially adverse to your interests as an investor in the notes.
Additionally, hedging activities may adversely affect the market value of your notes and the amount we will pay on your notes.
Potentially Inconsistent Research,
Opinions or Recommendations By UBS
UBS and its affiliates publish research from time to time on
financial markets and other matters that may influence the value of the notes, or express opinions or provide recommendations that
are inconsistent with purchasing or holding the notes. Any research, opinions or recommendations expressed by UBS or its affiliates
may not be consistent with each other and may be modified from time to time without notice. Investors should make their own
independent investigation of the merits of investing in the notes and the underlier to which the notes are linked.
The Notes Are Not Bank Deposits
An investment in the notes carries risks which are very
different from the risk profile of a bank deposit placed with UBS or its affiliates. The notes have different yield and/or return,
liquidity and risk profiles and would not benefit from any protection provided to deposits.
Under Certain Circumstances, the Swiss
Financial Market Supervisory Authority (“FINMA”) has the Power to Take Actions That May Adversely Affect the
Notes
Pursuant to article 25 et seq. of the Swiss Banking Act, FINMA
has broad statutory powers to take measures and actions in relation to UBS if it (i) is over-indebted, (ii) has serious liquidity
problems or (iii) fails to fulfill the applicable capital adequacy provisions after expiration of a deadline set by FINMA. If one of
these prerequisites is met, the Swiss Banking Act grants significant discretion to FINMA to open restructuring proceedings or
liquidation (bankruptcy) proceedings in respect of, and/or impose protective measures in relation to, UBS. In particular, a broad
variety of protective measures may be imposed by FINMA, including a bank moratorium or a maturity postponement, which measures may
be ordered by FINMA either on a stand-alone basis or in connection with restructuring or liquidation proceedings. In a restructuring
proceeding, the resolution plan may, among other things, (a) provide for the transfer of UBS’s assets or a portion thereof,
together with debts and other liabilities, and contracts of UBS, to another entity, (b) provide for the conversion of UBS’s
debt and/or other obligations, including its obligations under the notes, into equity, and/or (c) potentially provide for haircuts
on obligations of UBS, including its obligations under the notes. Although no precedent exists, if one or more measures under the
revised regime were imposed, such measures may have a material adverse effect on the terms and market value of the notes and/or the
ability of UBS to make payments thereunder.
Uncertain Tax Treatment
Significant aspects of the tax treatment of the notes are
uncertain. There are no statutory provisions, regulations, published rulings or judicial decisions addressing the characterization
for U.S. federal income tax purposes of securities with terms that are substantially the same as the notes, and we do not plan to
request a ruling from the IRS. Consequently, significant aspects of the tax treatment of the notes are uncertain, and the IRS or a
court might not agree with the treatment of the notes as pre-paid financial contracts that are not debt. Accordingly, it is possible
that your notes could alternatively be treated for tax purposes, and that the timing and character of the income or loss on your
notes could be materially and adversely affected.
In 2007, the IRS released a notice that may affect the
taxation of holders of the notes. According to Notice 2008-2, the IRS and the Treasury are actively considering whether the holder
of an instrument similar to the notes should be required to accrue ordinary income on a current basis, and they are seeking taxpayer
comments on the subject. It is not possible to determine what guidance they will ultimately issue, if any. It is possible, however,
that under such guidance, holders of the notes will ultimately be required to accrue income currently and this could be applied on a
retroactive basis. The IRS and the Treasury are also considering other relevant issues, including whether additional gain or loss
from such instruments should be treated as ordinary or capital, whether non-U.S. holders of such instruments should be subject to
withholding tax on any deemed income accruals, and whether the special “constructive ownership rules” of Section 1260 of
the Code should be applied to such instruments. Holders are urged to consult their tax advisors concerning the significance, and the
potential impact, of the above considerations. Except to the extent otherwise required by law, UBS intends to treat your notes for U.S. federal income tax
purposes in accordance with the treatment described above under “Supplemental discussion of U.S. federal income tax
consequences” and under “Supplemental U.S. Tax Considerations” in the accompanying product supplement, unless and
until such time as the Treasury and the IRS determine that some other treatment is more appropriate.
Prospective purchasers of notes should consult their tax
advisors as to the U.S. federal, state, local, non-U.S. and other tax consequences to them of the purchase, ownership and
disposition of the notes. For more information, see “Supplemental U.S. Tax Considerations” in the accompanying product
supplement.
THE UNDERLIER
We have derived all information contained in this preliminary
pricing supplement regarding the MSCI EAFE
®
Index (“MSCI EAFE”), including without limitation, its
make-up, method of calculation and changes in its components from publicly available information. Such information reflects the
policies of, and is subject to change by MSCI Inc (the “underlier sponsor”). UBS has not conducted any independent
review or due diligence of any publicly available information with respect to MSCI EAFE.
The underlier is a free float-adjusted market capitalization
index that is designed to measure developed market equity performance in Europe, Asia, Australia and the Far East. The underlier
includes components from all countries in Europe, Australia and the Far East that are designated by the underlier sponsor as
Developed Markets.
The five largest developed market countries included in the
underlier and their relative weightings as of June 29, 2018 are: Japan (24.03%), the United Kingdom (17.98%), France (10.99%),
Germany (9.53%) and Switzerland (7.79%). Other countries account for 29.69% and include Australia, Austria, Belgium, Denmark,
Finland, Hong Kong, Ireland, Israel, Italy, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain and Sweden. With 926
constituents, the underlier covers approximately 85% of the free float-adjusted market capitalization in each country.
As of June 29, 2018, the companies included in the underlier
were divided into eleven global industry classification sectors, each having a relative weight as follows: Financials (19.80%),
Industrials (14.32%), Consumer Discretionary (12.36%), Consumer Staples (11.32%), Health Care (10.65%), Materials (8.16%),
Information Technology (6.83%), Energy (6.07%), Telecommunication Services (3.64%), Real Estate (3.53%) and Utilities (3.32%).
MSCI and S&P Dow Jones Indices LLC have announced that the
Global Industry Classification Sector structure is expected to be updated after the close of business on September 28, 2018. Among
other things, the update is expected to broaden the current Telecommunications Services sector and rename it the Communication
Services sector. The renamed sector is expected to include the existing Telecommunication Services Industry group, as well as the
Media Industry group, which is expected to move from the Consumer Discretionary sector and be renamed the Media & Entertainment
Industry group. The Media & Entertainment Industry group is expected to contain three industries: Media, Entertainment and
Interactive Media & Services. The Media industry is expected to continue to consist of the Advertising, Broadcasting, Cable
& Satellite and Publishing sub industries. The Entertainment industry is expected to contain the Movies & Entertainment sub
industry (which is expected to include online entertainment streaming companies in addition to companies currently classified in
such industry) and the Interactive Home Entertainment sub industry (which is expected to include companies from the current Home
Entertainment Software sub industry in the Information Technology sector, as well as producers of mobile gaming applications). The
Interactive Media & Services industry and sub industry is expected to include companies engaged in content and information
creation or distribution through proprietary platforms, where revenues are derived primarily through pay-per-click advertisements,
and will include search engines, social media and networking platforms, online classifieds and online review companies.
The underlier is based on the MSCI Global Investable Market
Indexes Methodology - an approach to index construction that assesses global and cross regional comparisons across all market
capitalization size, sector and style segments and combinations. This methodology aims to provide exhaustive coverage of the
relevant investment opportunity set with a strong emphasis on index liquidity, investability and replicability. The underlier is
reviewed quarterly with the objective of reflecting change in the underlying equity markets in a timely manner, while limiting undue
index turnover. During semi-annual index reviews, the underlier is rebalanced and the large and mid-capitalization cutoff points are
recalculated.
Information from outside sources is not incorporated by
reference in, and should not be considered part of, this preliminary pricing supplement or any accompanying prospectus. Information
about the underlier, including the methodology used to calculate the underlier, is available at
msci.com/resources/factsheets/index_fact_sheet/msci-eafe-index-usd-price.pdf. We are not incorporating by reference the website or
any material it includes in this preliminary pricing supplement or any of the documents incorporated herein by reference.
Supplemental Information with
Respect to the MSCI EAFE Index
The following information supplements the general
description of the MSCI EAFE contained in the accompanying index supplement.
Determining the Market Investable Equity Universes
Equity Universe Minimum Size Requirement: This investability
screen is applied at the company level. In order to be included in a market investable equity universe, a company must have the
required minimum market capitalization. The equity universe minimum size requirement applies to companies in all markets and is
derived as follows:
|
|
•
|
First, the companies in the developed market equity universe are sorted in descending order of
full market capitalization and the cumulative coverage of the free float-adjusted market capitalization of the developed market
equity universe is calculated for each company. Each company’s free float-adjusted market capitalization is represented by
the aggregation of the free float-adjusted market capitalization of the securities of that company in the equity
universe.
|
|
|
•
|
Second, when the cumulative free float-adjusted market capitalization coverage of 99% of the
sorted equity universe is achieved, by adding each company’s free float-adjusted market capitalization in descending
order, full market capitalization of the company that reaches the 99% threshold defines the equity universe minimum size
requirement.
|
|
|
•
|
The
rank of this company by descending order of full market capitalization within the developed market equity universe is noted, and
will be used in determining the equity universe minimum size requirement at the next rebalance.
|
As of November 2014, the equity universe minimum size
requirement was set at US $209,000,000. Companies with a full market capitalization below this level are not included in any market
investable equity universe. The equity universe minimum size requirement is reviewed and, if necessary, revised at each semi-annual
index review.
Minimum Foreign Room Requirement: This investability
screen is applied at the individual security level. For a security that is subject to a foreign ownership limit to be eligible for
inclusion in a market investable equity universe, the proportion of shares still available to foreign investors relative to the
maximum allowed (referred to as “foreign room”) must be at least 15%.
See “MSCI Indices — Constructing the MSCI
Global Investable Market Indices — Determining the Market Investable Equity Universes” in the accompanying index
supplement.
Calculation Methodology for the MSCI Indices
The performance of the MSCI EAFE is a free float weighted
average of the U.S. dollar values of their component securities. Prices used to calculate the component securities are the official
exchange closing prices or prices accepted as such in the relevant market. In general, all prices are taken from the main stock
exchange or exchanges in each market. In the event of a market disruption resulting in any component security price to be
unavailable, MSCI will generally use the last reported price for such component security for the purpose of performance calculation.
Closing prices are converted into U.S. dollars, as applicable, using the closing spot exchange rates calculated by WM/Reuters at
4:00 P.M. London Time.
Information from outside sources is not incorporated by reference in, and should not be considered part of, this
preliminary pricing supplement or any
accompanying prospectus.
Historical High, Low and Closing Levels
of the Underlier
The closing level of the underlier has fluctuated in the past
and may, in the future, experience significant fluctuations. Any historical upward or downward trend in the closing level of the
underlier during any period shown below is not an indication that the underlier is more or less likely to increase or decrease at
any time during the life of your notes.
The following table sets
forth the quarterly closing high, quarterly closing low and quarterly closing levels for the underlier, based on the daily closing
level as reported by Bloomberg, without independent verification. Bloomberg reports the closing level of the MSCI EAFE Index to
fewer decimal places than MSCI, the underlier sponsor. UBS has not conducted any independent review or due diligence of publicly
available information obtained from Bloomberg. The closing level of the underlier on July 17, 2018 was 1,972.64.
Past
performance of the underlier is not indicative of the future performance of the underlier.
Quarterly Closing High, Closing Low and
Closing Levels of the Underlier*
|
Quarter Begin
|
Quarter End
|
Quarterly Closing High
|
Quarterly Closing Low
|
Quarterly Close
|
|
1/1/2014
|
3/31/2014
|
1,940.23
|
1,796.86
|
1,915.69
|
|
4/1/2014
|
6/30/2014
|
1,992.69
|
1,882.24
|
1,972.12
|
|
7/1/2014
|
9/30/2014
|
1,995.49
|
1,846.08
|
1,846.08
|
|
10/1/2014
|
12/31/2014
|
1,848.79
|
1,714.64
|
1,774.89
|
|
1/1/2015
|
3/31/2015
|
1,900.90
|
1,697.01
|
1,849.34
|
|
4/1/2015
|
6/30/2015
|
1,949.49
|
1,842.46
|
1,842.46
|
|
7/1/2015
|
9/30/2015
|
1,894.42
|
1,609.50
|
1,644.40
|
|
10/1/2015
|
12/31/2015
|
1,779.25
|
1,654.98
|
1,716.28
|
|
1/1/2016
|
3/31/2016
|
1,716.28
|
1,492.43
|
1,652.04
|
|
4/1/2016
|
6/30/2016
|
1,716.51
|
1,520.94
|
1,608.45
|
|
7/1/2016
|
9/30/2016
|
1,734.72
|
1,573.30
|
1,701.69
|
|
10/1/2016
|
12/31/2016
|
1,704.84
|
1,614.17
|
1,684.00
|
|
1/1/2017
|
3/31/2017
|
1,812.06
|
1,676.93
|
1,792.98
|
|
4/1/2017
|
6/30/2017
|
1,916.37
|
1,774.47
|
1,883.19
|
|
7/1/2017
|
9/30/2017
|
1,981.49
|
1,874.10
|
1,973.81
|
|
10/1/2017
|
12/31/2017
|
2,050.79
|
1,971.41
|
2,050.79
|
|
1/1/2018
|
3/31/2018
|
2,186.65
|
1,989.61
|
2,005.67
|
|
4/1/2018
|
6/30/2018
|
2,066.80
|
1,938.95
|
1,958.64
|
|
7/1/2018*
|
7/17/2018*
|
1,984.43
|
1,930.13
|
1,972.64
|
|
|
*
|
As of the date of this preliminary pricing supplement, available
information for the third calendar quarter of 2018 includes data for the period from July 1, 2018 through July 17, 2018.
Accordingly, the "Quarterly Closing High", "Quarterly Closing Low" and "Quarterly Close" data indicated are for this shortened
period only and do not reflect complete data for the third calendar quarter of 2018.
|
The graph below illustrates the performance of the underlier
from January 1, 2008 through July 17, 2018, based on information from Bloomberg. The dotted line represents a hypothetical buffer
level, which is equal to 90.00% of 1,972.64, which was the closing level of the underlier on July 17, 2018. The actual buffer level
will be determined on the trade date.
Past performance of the underlier is not indicative of the future performance of the
underlier.
We have not authorized anyone to provide any information or to
make any representations other than those contained or incorporated by reference in this preliminary pricing supplement, the
accompanying product supplement, the accompanying index supplement, or the accompanying prospectus. We take no responsibility for,
and can provide no assurance as to the reliability of, any other information that others may give you. This preliminary pricing
supplement, the accompanying product supplement, the accompanying index supplement and the accompanying prospectus is an offer to
sell only the notes offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information
contained in this preliminary pricing supplement, the accompanying product supplement, the accompanying index supplement, and the
accompanying prospectus is current only as of the respective dates of such documents.
TABLE OF CONTENTS
Preliminary Pricing Supplement
|
|
Page
|
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Summary Information
|
ii
|
|
Investor Suitability
|
1
|
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Key Terms
|
2
|
|
Hypothetical Examples
|
6
|
|
Additional Risk Factors Specific to Your Notes
|
9
|
|
The Underlier
|
15
|
|
|
|
|
Product Supplement dated May 2, 2016
|
|
Product Supplement Summary
|
PS-1
|
|
Hypothetical Returns on Underlier-Linked Notes
|
PS-17
|
|
Hypothetical Payment Amounts on Your Notes
|
PS-34
|
|
Risk Factors
|
PS-35
|
|
General Terms of the Notes
|
PS-51
|
|
Use of Proceeds and Hedging
|
PS-70
|
|
Supplemental U.S. Tax Considerations
|
PS-71
|
|
ERISA Considerations
|
PS-79
|
|
Supplemental Plan of Distribution (Conflicts of Interest)
|
PS-80
|
|
|
|
|
Index Supplement dated April 29, 2016
|
|
Index Supplement Summary
|
IS-1
|
|
Underlying Indices And Underlying Index Publishers
|
IS-2
|
|
Dow Jones Industrial Average
TM
|
IS-2
|
|
NASDAQ-100 Index
®
|
IS-4
|
|
Russell 2000
®
Index
|
IS-7
|
|
S&P 500
®
Index
|
IS-12
|
|
Commodity Indices
|
IS-17
|
|
Bloomberg Commodity Index
SM
|
IS-17
|
|
UBS Bloomberg Constant Maturity Commodity Index Excess Return
|
IS-24
|
|
Non-U.S. Indices
|
IS-29
|
|
EURO STOXX 50
®
Index
|
IS-29
|
|
FTSE
TM
100 Index
|
IS-31
|
|
Hang Seng China Enterprises Index
|
IS-35
|
|
MSCI Indexes
|
IS-38
|
|
MSCI-EAFE
®
Index
|
IS-38
|
|
MSCI
®
Emerging Markets Index
SM
|
IS-38
|
|
MSCI
®
Europe Index
|
IS-38
|
|
|
|
|
Prospectus dated April 29, 2016
|
|
Introduction
|
1
|
|
Cautionary Note Regarding Forward-Looking Statements
|
3
|
|
Incorporation of Information About UBS AG
|
5
|
|
Where You Can Find More Information
|
6
|
|
Presentation of Financial Information
|
7
|
|
Limitations on Enforcement of U.S. Laws Against UBS, Its Management and Others
|
7
|
|
UBS
|
8
|
|
Swiss Regulatory Powers
|
11
|
|
Use of Proceeds
|
12
|
|
Description of Debt Securities We May Offer
|
13
|
|
Description of Warrants We May Offer
|
33
|
|
Legal Ownership and Book-Entry Issuance
|
48
|
|
Considerations Relating to Indexed Securities
|
53
|
|
Considerations Relating to Securities Denominated or Payable in or Linked to a Non-U.S. Dollar Currency
|
56
|
|
U.S. Tax Considerations
|
59
|
|
Tax Considerations Under the Laws of Switzerland
|
70
|
|
Benefit Plan Investor Considerations
|
72
|
|
Plan of Distribution
|
74
|
|
Conflicts of Interest
|
75
|
|
Validity of the Securities
|
76
|
|
Experts
|
76
|
$
UBS AG
Capped Leveraged Buffered MSCI EAFE
®
Index-Linked Medium-Term Notes due
UBS Securities LLC